The most exciting challenge in years to the most boring part of the beer industry has ended. Don’t cry because it’s over, smile because it happened: PepsiCo last week announced it was throwing in the towel on Blue Cloud Distribution, its ambitious attempt to muscle its way into the obdurate middle tier.

“In only two years, the Blue Cloud Distribution team stood up a malt alcohol distribution network across 18 states,” a Pepsi executive told Brewbound in a statement. “We are proud of the Blue Cloud associates who pioneered a new business model in a new space.”

Translation: This wholesale juice ain’t worth the squeeze, we’re out.

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I’ve never had much luck getting the American drinking public to care about the machinations and intrigue of the beer industry’s middle tier. But Pepsi’s unceremonious exit from the wholesale business is certainly remarkable to me, and if you’re a Hop Take reader, probably to you, too, so let’s indulge some discussion on its demise, shall we? After all, this is Big Soda we’re talking about here, people! Pepsi has a market capitalization of ~$225 billion and a door-to-door ground game in 50 states that would make a logistics officer drool. There are not many firms in the country better positioned to disrupt the status quo of the notoriously unmalleable American middle tier.

Yet the middle tier remains, and after just over two years in existence, Blue Cloud does not.

Its death is as good an occasion as any to survey the progress of the Great Soft-to-Hard Corporate Brand Crossover Race. After all, Pepsi’s thesis in launching Blue Cloud back in February 2022 was that it would empower the beverage giant to handle the delivery of its nascent alcoholic line extensions of existing brands, namely Hard MTN Dew. The company devised a novel route to market, sending non-alcoholic MTN Dew concentrate to Boston Beer Company (BBC) facilities for alcoholization and packaging, then purchasing the resulting flavored malt beverage from Blue Cloud, a beer distributor federally licensed to move cases in 31 states.

Naturally, this pissed off a whole lotta BBC distributors, which consider that firm’s output theirs for the handling. And lo, the National Beer Wholesalers Association set its considerable political might against Blue Cloud, warning that slotting fees that Pepsi pays retailers for NA products would naturally give it leverage over those same retailers’ placements for its alcoholic wares (maybe; citation needed), and implying that the upstart had merchandised Hard MTN Dew near children’s products (maybe; citation needed x2.)

Whether it was middle-tier pressure, or skeptical state lawmakers (or both), the going got tough for Blue Cloud, and fast. In July 2022, BBC’s then-chief executive blamed the “slower-than-expected regulatory process” Pepsi’s distribution arm was then facing for Hard MTN Dew’s stilted rollout. By November 2023, Virginia Alcoholic Beverage Control Authority (VABC) had slapped BBC with a “final decision and order” barring it from sending contract-brewed Dew to retailers on Blue Cloud trucks. It was only a matter of time before Pepsi pulled the plug, and now it has.

If Blue Cloud flew too close to the sun, its Big Soda rival never left the ground — and that has made all the difference. The Coca-Cola Company has made plain its designs on the beverage-alcohol business, launching a joint venture with Molson Coors in September 2020 to produce alcoholized clones of Topo Chico, Simply, and Peace Hard Tea. It also fields boozed-up versions of Fresca and Minute Maid, plus a Jack & Coke ready-to-drink, via deals with Constellation Brands, LeVecke Corporation, and Brown-Forman Corporation, respectively — and owns a substantial minority chunk of Monster Beverage Corporation, which made its own crossover move with The Beast Unleashed last year.

Though its crossover booze portfolio, organized under the Red Tree Beverages banner in 2022, is bigger than Pepsi’s, Coke’s ambitions for bypassing the middle tier’s bullshit are much smaller. As in, nonexistent. “Red Tree will not distribute alcohol in the United States, nor will Coca-Cola,” the division’s lead exec announced at a Beer Marketers’ Insights conference in November 2023, shortly before VABC handed down its Blue Cloud decision.

Translation: That wholesale juice ain’t worth the squeeze, we’re staying out.

For all the intrigue happening behind the scenes — and all the negative media coverage, class-action lawsuits, and targeted legislation in the fore — Big Soda’s biggest players are both plugging away sales-wise in beer aisles across the country.

According to NielsenIQ scan data for all off-premise retail channels (grocery, convenience, liquor, and so forth) shared with Hop Take by the consulting firm 3 Tier Beverages, it’s been a real mixed bag. Over a 12-month period through Feb. 24, 2024, Hard MTN Dew is up 3.5 percent in dollars compared to the same period a year ago… but it’s down 1.5 percent in volume. Simply Spiked is going berserk, up triple-digit percentages in both dollars and volume… but that’s against weak comps from a year ago, when it was just getting rolled out. Topo Chico is the third-largest hard seltzer family and dropping with the segment; Lipton Hard Iced Tea is the second-largest new FMB with a vanishingly small share of the overall category. You get the picture.

There are two developments taking place out of frame that may prove even more important than these data. First, drinkers are trading malt- and cane-based products for spirits- and wine-based ones, a trend beyond the scope of this column that will nevertheless shape Big Soda’s booze-related strategies in the future. (In Coke’s case, it already has.) Second, and maybe more ominous for the beer industry’s status quo: Neither Coke nor Pepsi (nor Monster, nor AriZona, which has its own FMB crossovers) need the Great Soft-to-Hard Corporate Brand Crossover Race to pay off in the short term. These are massive, globally diversified consumer-packaged-goods firms that can afford to play a very long game.

“While performance may be more mixed than a resounding success among these branded entries, the information that companies like Coca-Cola, Pepsi, and AriZona have learned along the way … on the alcohol side of the beverage world has likely been invaluable,” wrote veteran beer-industry consultant Bump Williams in a memo in early March. “You have to wonder if this threat of outsiders sniffing around the middle tier has gone away completely or has simply gone into the shadows for the time being.”

Indeed you do — or I do, at least.

🤯 Hop-ocalypse Now

It’s a time-honored tradition for elder generations to gripe about Kids Today, but when it comes to newly legal-drinking-age tipping habits at America’s taprooms, at least, the Kids Are Alright. According to a recent analysis of tip size and customer age by mystery-shopping/-drinking firm Secret Hopper, Gen Z patrons averaged 27.5 percent gratuity, the highest of any age cohort. (Drinkers aged 46–50 left a mean of 23.7 percent, and clocked the highest average check size.) Shoutout to the Yutes — and honestly, shoutout to everybody for tipping above 20 percent. Though, given the dataset covered taproom visits from January 2021 through November 2022, I’m guessing such splashy gratuity was a pandemic-era tradition that hasn’t been consistently honored in the time since.

📈 Ups…

Strikewatch: Anheuser-Busch is now over; Teamsters at the firm’s 12 U.S. plants ratified their new contract… Pontoon Brewing in Georgia is back with regular ol’ distributors after allegedly being forced into bankruptcy due to nonpayments by the controversial Bevana platform… Non-alcoholic beer sales have more than tripled in five years in — wait for it — Utah… In Wyoming, a Brewers Association-backed franchise reform bill awaits the governor’s signature… Constellation Brands, emphatically Feeling Itself on that Modelo heater, promised investors 100 million more cases in the next five years… JuneShine acquired Flying Embers in an all-stock booch-on-booch deal

📉 …and downs

Karben4 Brewing in Wisconsin filed for Chapter 11 bankruptcy almost exactly a year after acquiring nearby Ale Asylum’s intellectual property on closeout… After just two years at the helm, Monster wrote down its $330 million CANarchy acquisition by $39.9 millionABI’s statline sucked in the U.S. last year, but it still set a new global revenue record anyway… On-premise beer sales were down for both Super Bowl and Valentine’s Day compared to 2023

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